UPDATE: Portugal Telecom 1Q Net Profit -40% As Costs Rise

Portugal Telecom SGPS SA (PT) said Thursday its first-quarter net profit fell 40% as revenue stagnated in its key home market and the company earmarked more money to expand networks and pay television.

PT, Portugal's biggest telecommunications company by market capitalization and subscribers, said net profit fell to EUR100.3 million from EUR166.4 million a year earlier. Still, the figure beat analysts' expectations for EUR94.6 million.

Revenue rose 11% to EUR1.77 billion, while earnings before interest, taxes, depreciation and amortization increased 5.1% to EUR633.4 million.

At 0732 GMT, Portugal Telecom shares were down 1.9% to EUR7.20, falling further than the overall Portuguese market.

Portugal Telecom invested heavily in the quarter in beefing up its pay-TV business in Portugal and third-generation mobile network in Portugal and Brazil, two of the company's main strategic bets. The company said capital expenditure in the quarter rose 2% to EUR229 million compared with a year ago, mostly due to costs from expanding its fibre optic networks.

European telecommunication companies, including PT, are facing stagnant revenues as customers scale back on spending during the financial crisis and migrate to low-cost operators to limit spending. Portugal, along with many of its peers in Southern Europe, has been hit especially hard by lower consumer spending that has forced companies to cut tariffs.

PT also said it had to spend more in the quarter to compete and attract customers.

The company's biggest source of revenue is Brazilian mobile company Vivo Participacoes SA (VIV), which it controls jointly with Spain's Telefonica SA (TEF). Due to a stronger real and growth in the Brazilian market, PT's revenue in the quarter from Brazil rose 27% to EUR916.5 million.

Besides Portugal and Brazil, Portugal Telecom has smaller operations in Angola, Cape Verde, Mozambique, Namibia and East Timor.

Company Web site: http://www.telecom.pt

-By Jason Sinclair, Dow Jones Newswires; [phone]; [e-mail]